Sleeping Giant Founder Optimistic About Growth of Contract Brewing

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There’s a sleeping giant in Denver, Colo. and it just woke up from more than 15 months of brewery planning.

The first dedicated contract brewing company west of the Mississippi, Sleeping Giant Brewing Company is the brainchild of Matthew Osterman, a former compliance and operations manager for Boulder-based New Planet Beer.

Now the president of Sleeping Giant, which launched in January, Osterman is at the helm of the country’s latest contract brewing outfit hoping to cash in on the growth of craft and the entrepreneurial exuberance of startup beer brands without a home base.

The practice of contract brewing – where one brewery pays another producer to make its beer – has grown considerably in recent years and attracted the attention of entrepreneurs like Osterman, who have recognized the lack of contract capacity for smaller brewers.

“Everything I looked at was either too big, too far or too old,” he said. “Some of them are doing so well, that craft isn’t their top priority.”

Sleeping Giant joins a growing list of contract-minded producers like Brew Hub, Brew Detroit, Beltway Brewing and Two Roads Brewing, all of which are offering most, if not all, of their space to craft brand owners in need of tank time.

Situated in 70,000 sq. ft. of warehouse space, Sleeping Giant is currently setup to brew and package about 30,000 barrels of beer annually, an amount Osterman said will double towards the end of 2015. Eventually, Sleeping Giant will be capable of producing 175,000 barrels annually and the company isn’t ruling out the possibility of building a second facility if future demand warranted additional space.

“You are looking at projections of over 2 million barrels of beer being contracted out,” he said. “If craft gets to 20 percent market share even by 2025, you are looking at a monumental increase in contract.”

Osterman wouldn’t share specific investment information, but told Brewbound that the multi-million dollar project is being funded through a small group of private investors as well as traditional bank loans.

What separates Sleeping Giant from many other contract options throughout the U.S., however, is the company’s focus on producing nothing but its customers’ beer.

“I used to be on the opposite side of the table,” Osterman explained to Brewbound, describing his time with New Planet. “I was with a company where we contracted out all of our beer and we did this at traditional packaging breweries, not at dedicated contract breweries.”

That approach, Osterman said, has one major flaw.

“When you are using excess capacity to contract on the side, your house brands are your top priority, and they should be, ” he said. “They are worth more to you financially and emotionally. Depending upon who you are, what your beer is and what your brand is, you can get into a situation where it is burdensome for the brewers and the guys on the floor packaging the beer.”

Photo credit: Keegan Gibbs

Photo credit: Keegan Gibbs

In other words, shift brewers at a traditional craft brewery might be less motivated to make a competitor’s products. That’s why Osterman made the decision to forgo a house brand altogether and focus exclusively on contract.

“Not being able to control your own destiny is a daunting concept, but being a contract producer is really the most critical component of our DNA,” he said. “For us, our livelihood is our contract brands and I felt, having been on the other side, that it was really the only way we could be completely impartial and eliminate any inherent conflicts of interest.”

In doing so, Osterman has also emphasized more of a manufacturing culture and only hires new employees who understand Sleeping Giant’s vision.

“I tell everyone immediately in interviews – ‘if you want to work at a brewery with a bunch of swag, branded clothes and be able to walk into the liquor store and say this is our beer, then Sleeping Giant is not the right spot,’” he said. “Every person in here knows it is the customers who are signing our paychecks. We are only successful as they are.”

And because the company focuses exclusively on manufacturing – it doesn’t have a taproom or sales and marketing departments to manage and invest behind – Sleeping Giant has been able to attract workers with “diverse skill sets,” Osterman said.

“We just hired a mechanical engineer, an industrial engineer, and a mechanic who has worked his entire career on race cars,” he said. “Focusing on production has really opened up the talent pool.”

The gamble of investing millions to build out a large production facility without the assurance of committed capacity on day one has paid off. Sleeping Giant is currently working with 14 different craft brands — including Dad and Dude’s Brew, Backcountry Brewing, Dog Tag Brewing, Storm Peak Brewing and House Beer. The company is also in early discussions with three top-50 breweries looking for alternative packages and additional space.

“I have to believe those companies would have never called if we were a big brewery, with our own brands, that had extra capacity,” he said.

Nevertheless, Sleeping Giant will be squaring off against one big, deep-pocketed competitor in Brew Hub, an operation backed by billionaire Ron Burkle’s Yucaipa Companies. That company plans to spend $100 million to build five new contract facilities by 2018. It opened its Lakeland, Fla. facility last September and has already announced plans to build a second location in St. Louis, Mo..

Osterman said he is aware of Brew Hub concept and the company’s long-term plans, but still believes there will be enough contract business for the both of them.

“I think we will see a jump in contract production and if this ‘inevitable’ shakeout everyone points to does occur, it will end up creating contract opportunities for more brands,” he said. “I definitely believe that Brew Hub and Sleeping Giant can be successful without one company eating the other company’s lunch.”

In 2013, the Brewers Association counted more than 240,000 barrels of contract brewed U.S. craft beer, about 1.5 percent of all craft beer produced. Although official 2014 figures will not be available until next week, BA economist Bart Watson said he believes there will be a slight uptick from 2013.